When you borrow money to buy a home, it’s no secret you’ll have to deal with a lot of paperwork. One of the documents you’ll see is an amortization schedule provided by your mortgage lender who could be a retail bank, a mortgage bank, a mortgage broker, or elsewhere. We all know a schedule is meant to keep you on track, but what is an amortization schedule exactly?

The word “amortization” refers to the repayment of a debt through regular payments until the loan is paid off in full. So in essence, an amortization schedule outlines your loan payments each month and helps keep you on track. When you take out a fixed-rate mortgage—whether it’s for 30 years or any other term—your lender can generate an amortization schedule that will show your payment for each month of your loan.

The schedule will show how the payment will be divided into principal and interest so you know how much of each you are paying each month. It will also show you the outstanding balance of your loan as you progress through the loan term.

An amortization schedule will show you how the amount of interest you pay changes compared to the amount of principal you pay during the loan. You can view it on a monthly or yearly basis. In the early years of your mortgage, your monthly payment will be almost entirely interest, but gradually that shifts—by the end of your loan, your payments are almost entirely going to pay down your principal.

Thinking about refinancing?

When you first buy a home, you may not care much about your balance or how your payments are split. After you’ve owned your property for a few years, though, you may be thinking about refinancing or selling. In that case, you’ll need to know your balance so you can estimate your home equity. You can find this information on the amortization schedule.

If you decide to refinance, remember if you switch from one 30-year loan to another, you’re restarting the interest clock and could end up paying more over time, even with a lower rate. For example, if you refinance after seven years of payments into a new 30-year loan, you’ll be paying interest on your home for 37 years.

Paying down your principal loan balance

Another reason to pay attention to your amortization schedule—and to use an amortization calculator—is you can easily see the benefit of making extra payments to reduce your principal balance.

While your monthly payments won’t change unless you refinance, you can pay off your loan early with additional payments.

Three ways to pay down your balance faster:

A little extra each month. A lump sum payment. Biweekly payments.

Study your amortization schedule when you get it to see if you can accelerate your loan payoff date.

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